The working group has also suggested that no model should be imposed on banks and that the choice of becoming a multiple corporate agent or a broker should be left to the respective banks and their boards.
Financial Chronicle has a copy of the report, circulated by the RBI working group among its members for their feedback.
Several banks at their meeting with the central bank and the insurance regulator had expressed reservations about a clause in the broker regulations of the Insurance Regulatory and Development Authority (IRDA), which said not more than 25 per cent of the insurances handled by an insurance broker (read bank) in any financial year should be placed with the insurance company within the promoter group separately for life and general insurance business.
With most banks such as SBI, ICICI, Canara Bank, Punjab National Bank, Union Bank, Allahabad Bank, Bank of Baroda distributing insurance products of their own subsidiaries this clause was difficult to follow.
As a result, the report of the working group has said the IRDA should amend the regulations to give five years to a bank to reach the 25 per cent cap on the insurance business placed with the insurance company of the promoter group required by IRDA.
The report said by the end of the first year of operations a maximum of 75 per cent of the insurance business could be placed with the group insurance company. At the end of the second year of operations, this should decrease to 60 per cent; end of third year a maximum of 50 per cent; end of fourth year a maximum of 35 per cent; and a bank should achieve the 25 per cent cap by the end of the fifth year.
Citing the example of Hong Kong, which has a successful multiple corporate agency model (one bank allowed to sell policies of many insurers), the report said to begin with, a bank might be allowed to tie up with two life, two non-life and two health insurance companies.
Under the existing insurance regulations, a bank is allowed to
distribute policies of one life and one non-life insurer as its
corporate agency partner.
The working group is of the opinion that no single model will be
appropriate for the type of banks operating in India. They range from
large public sector banks to private sector banks, foreign banks, to
cooperative banks (large and small) to regional rural banks. All have
their distinctive characteristic structures and will need different
models of bancassurance to operate.
"To meet the expectations of all stakeholders and also to ensure that
the bank branches are effectively utilised for marketing of insurance
business thereby increasing penetration and the customer also gets the
choice of products, the committee is of the opinion that along with
the current corporate agency model, banks should be allowed to have
any one of the following models -- multiple corporate agency model
(one bank allowed to sell policies of many insurers and broking
model," said the RBI panel report.
MV Tanksale, chief executive of Indian Banks Association (IBA) and a
member of the RBI panel, told Financial Chronicle, "RBI is the
convener of the working group and we have not submitted the report to
RBI yet. Therefore, I cannot discuss anything about the report. A copy
of the report was circulated to the members to get their feedback."
The group said banks that want to go for the broking model might do so
as per the regulations released by IRDA and what RBI is expected to
Among other measures suggested to increase the insurance penetration,
the working group has observed that public sector behemoth Life
Insurance Corporation of India (LIC) has tieup with 42 banks as
corporate agents, of which only a couple of banks actually mobilise
The business mobilised by LIC through bancassurance is miniscule (less
than 5 per cent) to its total business generated and also in the total
bancassurance sector individually.
"Hence there is a scope for having more than 40 banks from this tieup,
who can adopt either broking or multiple corporate agency model to
offer the products/services of other insurance companies. This will
help increase penetration," said the report.
The report has also suggested that cooperative banks and regional
rural banks that have big presence in rural areas are not leveraged
much to do insurance business. Efforts should be made to enable them
to tie up with insurance companies.
The group has also suggested amending the clause requiring banks
becoming insurance brokers to place exclusive staff or qualified
person in each and every branch of the broker (read bank). The working
group said such a clause would deter a lot of banks from broking
business as getting exclusive persons to do this business in banks
would involve fresh recruitment or carving out staff from existing
system which may not be cost effective.
There are nearly 55,000 bank branches that have never sold a life
insurance policy. Many banks, which have started their own insurance
firms, have refused to become brokers for other insurers. They would
rather function as corporate agents of their own insurance companies.
Finance minister P Chidambaram, in his annual budget speech in
February 2013, had said banks would be permitted to act as insurance
brokers for marketing and selling of insurance policies, thereby
increasing insurance penetration.
Following this, the IRDA came out with gazette notification, dated
July 19, 2013, defining the procedure for banks to become insurance
brokers, as well as their obligations and responsibilities.
Subsequently, the RBI in November 2013 came out with draft regulations
for banks becoming brokers.
On December 20, 2013, the department of financial services issued a
circular instructing all public sector banks to start the process of
becoming insurance brokers by January 15, 2014.
The main reasons cited in the finance ministry circular were that the
broker model would increase insurance penetration in the country by
utilising untapped bank branch network in the country, prevent
misselling or forced selling and would make products most suitable for
Banks had their reservations on becoming insurance brokers and
expressed the same to the IRDA and RBI. Taking into consideration the
reservations expressed by banks, the RBI on January 27 called for a
meeting of heads of all banks and the chairman and officials of IRDA.
Another meeting followed this with secretary financial services in the
finance ministry and banking officials to find a solution. Following
up on these meetings, a panel was constituted as per the directions of
the RBI, and included representatives from IRDA, RBI, banks and Indian
Banks Association, to look into the concerns of banks about getting
into broking business. It was also mandated to recommend the requisite
model for banks to enable them to have multiple insurance
relationships, which would be acceptable to all.